Chinese Economics Thread

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The advantages of ‘Made in China’ still outweigh the risks
  • While some companies have announced that they are looking elsewhere, there is little evidence of a systemic spike in the number of firms shifting production away from China in the wake of the trade dispute
10:56pm, 13 Apr, 2019
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Export manufacturers in China are clearly worried about the potential impact of raised US import tariffs, but the latest evidence seems to suggest that most are not yet worried enough to shift production away from the mainland.

True, some companies have announced that they are looking to set up export manufacturing capacity elsewhere. South Korean memory chip maker SK Hynix says it intends to move some output back home; Taiwan-headquartered Foxconn, which assembles the iPhone, has said it is looking at expanding in Vietnam; and officials at both Toshiba Machine Co and heavy equipment manufacturer Komatsu have told the media that they are already moving some production out of China.

Manufacturers of high-volume, low-margin products in search of cheaper labour and land have been moving capacity elsewhere in Asia for years and it is difficult to determine how much these more recent shifts have been prompted by the uncertainties of the US-China trade relationship or if they are part of the longer-term trend to diversify production prompted by rising costs in China and new opportunities elsewhere.

Whatever the motive, there is little evidence of a systemic spike in the number of companies shifting production away from China in the wake of the trade dispute. It is notable that the trade deficit in goods between the US and China reached a 10-year high of US$419 billion in 2018 despite the threat of raised tariffs. While this is at least partially a result of stockpiling ahead of any announcement, more granular data tells a similar story of business as usual.

Capital expenditure levels in the rest of Asia are actually down in 2019 year to date compared to 2018. If companies were investing significant sums in buying property or machine tools ahead of a move, they would be expected to rise. Indeed, orders from the Japan Machine Tool Builders’ Association, a useful leading indicator for investment in new manufacturing capacity, are also down from the same time last year.

These are all indicators that initial worries of a mass exodus from China in response to the trade tensions are overdone. We argue that China will be investing more in new equipment or factory extensions, suggesting that exporters have chosen to upgrade existing facilities to improve quality and productivity to allow them to raise prices to offset the negative impact of the tariffs.

It seems that although export manufacturers are looking at the prospect of raised tariffs with alarm, for most the benefits of staying put outweigh the potential downside.

Push factors such as growing protectionism and rising wages for Chinese workers are a concern, but even the problem of rising wages has a silver lining. The Chinese middle class now numbers some 400 million and we expect it to grow to 850 million by 2030. Chinese workers have more spare cash to spend.

There are other strong pull factors. The mainland has a supply chain ecosystem unrivalled anywhere else in the world. The clusters of parts-production expertise that have grown up around centres like Shenzhen and Chongqing would take years of work and billions of dollars to reproduce elsewhere in the region.

China is also years ahead of the rest of Asia in both hard and soft infrastructure. High-speed rail and air links have opened up the middle of the country with its vast resources of labour and cheaper land to manufacturers. Its education system is turning out millions of new university graduates, new intellectual property laws have given added protection to proprietary technology, and authorities are still working hard to make exporters’ lives easier: for example, the central city of Chongqing, which manufactures a third of the world’s laptops, reduced export clearance times by 98 per cent in 2018.

For most manufacturers, it seems that the continuing advantages of “Made in China” outweigh the threat of new US tariffs.
 
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00:23, 14-Apr-2019
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Why does China import so many soybeans?

Soybean is the most imported agricultural product in China. You may ask, since China is so big, why don't the Chinese grow it themselves?

The gap in China's soybean market is rather huge – around 90 percent of its soybeans are imported from the international market and are mostly used in oil and animal feed.

As early as 2004, China's agricultural imports exceeded exports and became net importers. The import volume increases year by year.

In 2017, China imported a total of 95.53 million tons of soybeans, of which 32.58 million tons came from the U.S., and 50.93 million tons were imported from Brazil. In 2018, because of China-U.S. trade frictions, the country imported a little less but still reached over 82 million tons in the first 11 months.

Can China produce them with its own land? Is that feasible?

Ke Bingsheng, former president of China Agricultural University (CAU), said that China's arable land is too limited. If the country does not import them and use its own land for production, there will only be 120 kilograms of soybeans per mu (one "mu" is about 0.067 hectares).

That means even if all the arable lands in north and northeast China are used for soybean production, it would still not be enough.

China's resources are insufficient, so imports can help it conserve land. Importing soybeans and cotton is equivalent to importing land and water resources. This is of great benefit to China's ecological environment and so on, said Ke.
 
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Xinhua Headlines: Investors eye expanded China portfolios for opening-up dividends
Xinhua| 2019-04-14 11:01:58
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The "most exciting changes" in global capital market history are taking place in China's financial landscape, with heavyweight players vying for stronger presence and promising returns.

"The opening of China's financial market may be one of the biggest and most exciting changes in the history of global capital markets," said Li Bing, head of Bloomberg China.

From April, China's yuan-denominated bonds start to become part of the Bloomberg Barclays Global Aggregate Index (GAI), a global benchmark, giving investors greater access to the world's third-largest bond market.

MILESTONE INCLUSION

A total of 356 yuan-denominated government and policy bank bonds will be added into the Bloomberg Barclays GAI over the next 20 months, making Chinese bonds the fourth largest currency component, following the U.S. dollar, euro and Japanese yen, after their full inclusion.

The inclusion "represents an important milestone for China as it continues to strengthen and liberalize its capital market and looks to attract more international investors," said Mark Leung, CEO of J.P. Morgan China.

This will be the "biggest change to the index since the introduction of the euro," which in itself speaks volumes about the potential implications, Li Bing said.

When fully implemented, China will make up approximately 6.06 percent of the index, using data as of January 31 this year.

As the Bloomberg Barclays GAI is widely tracked by global asset managers, the inclusion will lead to an inflow of overseas investment into the market.

"That step both reflects the importance of those bonds in foreign portfolios and will likely encourage more purchases of those securities going forward," said Changyong Rhee, IMF's director of the Asia and Pacific department.

According to a Bloomberg survey of more than 180 global investors in February, 64.4 percent of them planned to increase investment in China's domestic bond market this year, and a majority of them attributed the planned portfolio build-up to the inclusion.

Moody's forecasts that a full inclusion could potentially lead to an inflow of about 2 trillion U.S. dollars of funds.

BETTING ON NEW OPPORTUNITIES

The inclusion marks the latest step in opening China's financial market. The massive size and faster opening-up of the market generate opportunities few investors are willing to miss out on.

"The openness, competitiveness and influence of China's financial market have been growing and are widely recognized by the international market," China's central bank governor Yi Gang said at a forum last month.

Significant progress has been made in creating a more open and transparent China market for foreign inbound participation, Li Bing said. "Global investors are also encouraged by China's commitment to financial sector reforms to create a more level playing field for foreign financial services firms."

Thanks to the country's broader opening-up initiatives, German insurer Allianz Group has gained permission for the establishment of an insurance holding company in China, which is the country's first wholly-owned insurance holding company by a foreign insurer.

"China is central to our growth strategy in Asia," said George Sartorel, Allianz regional CEO for Asia Pacific. "We look forward to contributing to the continued development and innovation of China's fast-growing insurance sector."

Japan's leading brokerage Nomura Holdings plans to launch its newly-approved China joint venture within the year, taking advantage of rules to allow 51-percent foreign ownership of brokerages.

"We are confident that we can play a part in moving China's economy to the next level and help issuers raise funds and investors diversify their portfolios," said Toshiyasu Iiyama, head of China committee at Nomura Holdings, citing increasing demand from foreign firms and investors to raise funds and invest in China.

The country witnessed a net inflow of 43-billion-dollar overseas investment in its equity market last year, surging more than 10-fold from 2017, according to data from the State Administration of Foreign Exchange.

Vowing consistent stance on expanding financial opening-up, Yi Gang stressed five aspects, including opening up the financial service sector, full implementation of the pre-establishment national treatment plus negative list management system, and improvement of business environment.
 

Hendrik_2000

Lieutenant General
China says its first-quarter GDP grew by 6.4 percent, topping expectations
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Key Points
  • China said on Wednesday its economy expanded by 6.4 percent in the first quarter of 2019.
  • Analysts polled by Reuters expect Beijing to announce that its economy grew by 6.3 percent year-on-year in the first quarter of 2019.

A port in Qingdao, Shandong province of China.
Visual China Group | Getty Images
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on Wednesday released a slew of official economic data that beat expectations, including the widely anticipated gross domestic product figure.

Beijing said its economy expanded by 6.4 percent year-on-year in the first quarter of 2019, topping the 6.3 percent that analysts polled by Reuters had expected. China grew by 6.4 percent year-on-year in the fourth quarter of last year, and 6.8 percent in the first quarter of 2018.

The Asian economic giant also released other economic indicators:
  • Industrial production jumped 8.5 percent year-on-year in March — surging past the 5.9 percent estimated by Reuters to register the fastest growth since July 2014.
  • Retail sales for March grew by 8.7 percent year-on-year, beating Reuters’ projection of 8.4 percent.
  • Fixed asset investment in the first quarter increased by 6.3 percent year-on-year, in line with expectations.
Investors have been watching the health of the Chinese economy — the world’s second largest — amid
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ongoing trade dispute with
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. Official GDP figures are widely followed, but many experts have long expressed skepticism about the veracity of China’s reports.

Nevertheless, a number of recent data — compiled privately and from official sources — have pointed to an improvement in the Chinese economy, thanks partly to
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. In March, China reported much
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, and an unexpected expansion in the country’s
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.

That could mean the Chinese economy may have hit a bottom and is now recovering, said Alexander Treves, an investment specialist at J.P. Morgan Asset Management.

“What we’re looking for now ... is what happens over the next nine, 12, 18 months,” he told CNBC’s
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earlier this week.

“This GDP number is much less important than what we’re going to see over the next few months. And already we’ve seen some bottoming out of earnings, some bottoming out of activity with room for improvement from here,” he added.

The tariff fight between China and the
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hit economic activity globally, especially in the second half of last year. That put additional pressure on China as the country was trying to wean its economy off an excessive reliance on debt to grow, leading to worries that the Asian giant was heading toward a hard landing.

— Reuters contributed to this report.
 
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Xinhua Headlines: Chinese economy in good shape in Q1
Xinhua| 2019-04-17 16:07:22
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The Chinese economy got off to a good start in 2019 as more indicators showed positive signs of stabilization for the first quarter (Q1) of this year.

The world's largest developing economy beat market expectations to advance 6.4 percent year on year in Q1, remaining flat with the GDP expansion in the previous quarter, data from the National Bureau of Statistics (NBS) showed Wednesday.

UPBEAT DATA

Wednesday's fresh data added to good previous economic indicators, pointing to expansionary economic activity and improving economic structure.

The tertiary sector reported the strongest growth in added value by expanding 7 percent to reach 12.232 trillion yuan, which accounted for 57.3 percent of the total Q1 GDP, picking up by 0.6 percentage points compared with Q1 2018.

Q1 industrial output expanded 6.5 percent year on year, picking up from the 5.3-percent growth in the January-February period, while growth of retail sales of consumer goods also quickened from the first two months by growing 8.3 percent year on year, consolidating consumption's prominent role in driving growth, which contributed 65.1 percent of the GDP in the first quarter.

Fixed-assets investment, property investment and trade in Q1 all grew faster than the January-February period, with signs of optimizing structure such as robust investment in high-tech manufacturing and services.

The surveyed unemployment rate in urban areas edged down by 0.1 percentage points from the previous month, while per capita disposable income climbed 6.8 percent year on year in real terms.

The Chinese economy performed within an appropriate range in Q1, with majority of the indicators faring better than expectations in March, NBS spokesperson Mao Shengyong told a press conference. "Market expectations are improving and positive factors are mounting."

POLICY DIVIDENDS UNLEASHING

Mao attributed growing confidence in China's development to the roll-out and implementation of a string of supportive policies.

China highlighted stabilizing employment, trade, investment, finance, foreign investment and market expectations and took counter-cyclical adjustment measures in Q4 2018.

Targeted steps were taken to expand effective investment and domestic consumption earlier this year while the government decided in March to cut taxes and fees for the public and enterprises.

Data from the central bank showed that new yuan-denominated loans and newly-added social financing all posted faster growth in March, indicating that the financial sector is playing a bigger role in supporting the real economy thanks to policy guidance.

"China's more nuanced approach to stimulus this time around has nonetheless translated into a pronounced market bounce," UBS said in a note when commenting on the country's strong factory activity expansion in March.

The People's Bank of China said Monday that it would strengthen coordination between monetary, fiscal and other policies to keep growth stable and forestall risks.

STEADY GROWTH ON TRACK

The stable Q1 performance has laid a sound foundation for the stable and healthy economic development of the whole year, the NBS said.

China aims to expand its GDP by 6-6.5 percent this year.

While downgrading global growth forecasts, the International Monetary Fund last week revised up China's 2019 growth projection by 0.1 percentage points to 6.3 percent, citing factors including the recent developments in the China-U.S. trade talks and China's stronger-than-expected expansionary fiscal policy.

Martin Raiser, World Bank country director for China, said the 6.4 percent Q1 GDP growth was a sign that economic activity had stabilized. "The turn of the credit cycle is expected to lead to an upswing in the second half of the year."

The economic downward pressure still persists given global uncertainties and domestic structural issues, Mao said.

The government will redouble efforts to implement policies to ensure the economy performs within an appropriate range and advance the high-quality development, Mao added.
 
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Beijing to build "midnight canteen" over 10 food streets
Xinhua| 2019-04-17 21:31:58
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Beijing plans to build 10 food streets for night owls to eat in the next three years, said the city's commerce bureau.

By the end of 2021, about 10 business streets in Beijing will be upgraded and built for "midnight canteens," as part of the city's efforts to enrich its nightlife.

Beijing sees a strong late-time spending and a big market for late-night dinners, according to China's major food delivery platforms.

According to the city's government work report, Beijing will also urge malls, supermarkets and convenience stores to stay open later at night.
 

vincent

Grumpy Old Man
Staff member
Moderator - World Affairs
Chinese are buying fewer but more expensive phones

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APRIL 16, 2019
|IN
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|BY
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Apple continues to lead global premium smartphone segment by capturing more than half of the market while OnePlus entered the top five brands in the premium segment for the first time ever in 2018 as competition intensified in the global premium smartphone segment**. The segment
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than the
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, according to Counterpoint Research’s
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service.

The segment grew 14% year-on-year (YoY) in terms of sell-in and
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. Growth was driven by new iPhones and launches in a premium segment from Chinese OEMs like Huawei, OPPO, OnePlus.

Overall, Chinese players have scaled up their presence in the premium segment and have expanded the category. Further, they are now eyeing new geographies for growth.
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remained the market leader capturing 51% share of the premium segment, a significant lead over its nearest competitor Samsung which had a 22% share. However, Chinese brands made their mark as Huawei’s share in the segment reached double digits (10%) for the first time in a calendar year.
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(+863%),
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(+209%), and
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(+149%) were the fastest growing brands in the premium segment.

An indication of the increasing competition in the segment is highlighted by the fact that close to 40 OEMs now compete in the premium segment globally. Of these, the top five players account for almost 90% of shipments. Premium segment contributed to one-fourth (22%) of the global smartphone shipments in 2018.

Lets a take a closer look at how the different brands performed in the premium segment: –

  • Huawei’s strong performance was primarily due to the success of the P20 and
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    , which focussed on camera, power, and design as key differentiating features. It also gained share in the premium segment in China and Europe.
  • OPPO’s growth came from its home market China with R15 and R17 series doing well. The brand is actively targeting European countries with its mid-to-high-tier offerings. Additionally, it is also targeting operators in Europe to launch its 5G portfolio outside China, along with new features in its flagship like 10x Zoom.
  • OnePlus’s performance came on the back of the OnePlus 6T. In terms of regions
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    ,
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    , and Western Europe drove four-fifths of its global shipments. OnePlus recorded its highest ever shipments in a single quarter (Q4 2018) in India to lead the premium smartphone segment for
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    and captured 36% market share. Another feat for the brand came in
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    when it entered among Top five OEMs in the premium segment in the
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    for the first time.
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    entered the top five premium smartphone brands in Western Europe in 2018.


Exhibit 1: 2018 Premium Smartphone Segment Market Share
Global-Premium-Market-2018Q4.jpg


In terms of regions, APAC was the fastest growing region for the premium segment with a growth of 27% YoY. Huawei, OPPO, Vivo, and Xiaomi’s performance in China drove this growth. In terms of countries, China and the US alone contributed to more than half of the global premium market shipments.
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37% YoY while the US grew 10% YoY. Other countries where the premium segment grew fast include Indonesia (+54%),
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(+28%), Canada (22%),
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(22%), Thailand (+20%),
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(+14%),
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(13%), and Japan (10%). Below are the top five brands in the premium segment by different regions in 2018: –



Exhibit 2: Premium Smartphone Segment Rankings of OEMs by Regions 2018

NAM MEA LATAM WE CEE CHINA APAC Excl China
India

Apple

Apple Samsung Apple Samsung Apple Apple
Samsung

Samsung

Samsung Apple Samsung Apple Huawei Samsung
OnePlus

Google

Huawei Huawei Huawei Huawei OPPO Sony
Apple

LG

Sony Motorola OnePlus OnePlus vivo OnePlus
Huawei

Motorola Nokia HMD LG Google LG Xiaomi Huawei
vivo

Source: Counterpoint Research Market Monitor 2018

Going forward we estimate that the premium smartphone segment will continue to grow in double digits. By offering additional features like
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, triple camera, full-screen display, and higher memory configurations, smartphone OEMs are subtly increasing the average selling price (ASP) of devices. This also helps them leverage the gap created by Apple in the premium segment. The next growth cycle in the premium segment will be driven by the emergence of commercially available 5G smartphones. This will help OEMs to not only to target users looking to upgrade but also give Chinese OEMs an opportunity to enter new geographies where 5G will be commercially available soon.



*Pricing analysis is based on wholesale pricing

** Premium segment >$400
 
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Interview: China's robust Q1 growth bolstered by fiscal stimulus, further reform: scholar
Xinhua| 2019-04-20 16:34:42
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China's buoyant economic expansion for the first quarter (Q1) has been largely propelled by the country's fiscal stimulus as well as energetic reform and opening-up, a U.S. scholar has said.

"The greater emphasis on both fiscal measures and on supply-side measures, in contrast to purely demand management measures, is somewhat of a break with the past and deserves to be highly applauded," Sourabh Gupta, a senior fellow at the Washington-based Institute for China-America Studies, told Xinhua in an interview on Friday.

China's gross domestic product (GDP) growth notched a rate of 6.4 percent year on year in the first quarter, topping market forecasts and on par with that of the previous quarter, the National Bureau of Statistics (NBS) reported Wednesday.

The sturdy expansion was mainly driven by a striking 8.3-percent growth in retail sales of consumer goods year on year, which constitutes an overwhelming 65.1 percent in the quarterly GDP, among major indicators that fared better than expectations.

Meanwhile, a 7-percent increase in the tertiary sector, marking the strongest growth in added value, and a significant 6.5-percent upswing in industrial output for the first quarter also indicated improving economic conditions, especially an expanding manufacturing sector, which Gupta viewed as "a very good sign."

Such indicators showed that "the darkening cloud over the Chinese economy is passing and it is once again headed for a period of sustained and self-sustaining private sector-led growth," the scholar said.

To reach such an encouraging growth, Gupta believed that the Chinese authorities have struck a "delicate and correct" balance between introducing supply-side measures, such as tax incentives and reduction of fees, and demand management measures, such as loosening credits.

He added that the balance "between excess stimulus and policy passivity" has also been well maintained by the central government in the face of downside risks, amid market concerns over domestic growth, trade tensions with the United States and a potential global economic slowdown.

"The Chinese economy was always capable of weathering its impact and these macroeconomic numbers show that this is indeed the case," said the China expert.

In targeted moves to energize market entities, China has implemented massive tax and fee cuts for both enterprises and individuals, so as to ease corporate burdens and spur market vitality.

Following colossal tax and fee cuts of around 194 billion U.S. dollars in 2018, China will reduce the tax burdens and social insurance contributions of enterprises by approximately over 298 billion dollars in 2019.

First-quarter tax revenue growth dropped 11.9 percentage points year on year, owing to the tax exemption policies, according to the Ministry of Finance on Tuesday.

The second reason for China's robust growth is the liberalizing measures that have been introduced over the past year, particularly China's solid efforts to further reform and open up, Gupta noted.

"This was best encapsulated by the passage of the Foreign Investment Law this March. These liberalizations have ... given the economy a lift," said the long-time China watcher.

The scholar believed that China's consistent focus on reform and opening-up would continue to empower its economic trajectory upward in a sustainable way.

"I believe China is in an actively reformist policy phase right now and has been energetically seized of the imperative to transition from an investment-led growth model to a more productivity-led and consumption-based model," he said. "This will keep China's robust growth on a sustainable footing."

As the NBS set China's GDP growth rate at a range of 6-6.5 percent for 2019, Gupta expected the growth pace for the next two quarters to be within the mid-range of the new target, and to close out the year near the high range.

Gupta said China's economic performance in the first quarter has injected optimism into global markets, as China has been "a disproportionately large contributor to global growth" since the 2008 global financial crisis.

"Considering that the cyclical growth prospects in advanced economies is decidedly mixed ... The robust growth in Q1 in China will certainly buoy market expectations," said the scholar.
 

Lethe

Captain
I notice that IMF has released its April 2019 World Economic Outlook, including projections for global economic growth out through 2024.

Unfortunately, relative stasis is the name of the game. China is projected to remain the world's second-largest economy in 2024, at 82% the size of the United States' (up from 67% in 2019). India will also remain the world's fifth-largest economy through 2024 at 92% the size of Germany (up from 75% in 2019).

The future is slow to arrive.
 

manqiangrexue

Brigadier
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Malaysia to revive 2nd major China-linked project
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•April 19, 2019
KUALA LUMPUR, Malaysia (AP) — Malaysia's government said it will resurrect a multibillion-dollar property and transportation project in Kuala Lumpur involving a Chinese state company, calling it a contribution to China's global "Belt and Road" infrastructure initiative.

Prime Minister Mahathir Mohamad, who is traveling to China next week to attend the second Belt and Road forum, said Friday the Cabinet agreed to reinstate the Bandar Malaysia project, which is expected to cost 140 billion ringgit ($33.8 billion).

It comes a week after Malaysia resumed a China-backed rail link project after the Chinese contractor agreed to cut the construction cost by one third to 44 billion ringgit ($10.6 billion). Mahathir said that both projects will boost ties with China and add economic value.
 
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